Highlights of
Report Number: †2009-20-093 to the
Internal Revenue Service Chief Technology Officer.

IMPACT ON TAXPAYERS

In late 1998, the Internal
Revenue Service (IRS) began developing the Excise Files Information Retrieval System (ExFIRS) to improve
motor fuel excise tax compliance and identify and reduce fraud.† The IRS has spent more than $108 million to
develop the ExFIRS, and in April 2006 began using it to perform data matching
to identify potential noncompliant taxpayers.†
However, changing system requirements resulted in increased costs of
almost $2.8 million and delayed implementation of the first phase of the ExFIRS
modernization by 1 year.† Improvements
are needed to help ensure that continued ExFIRS development is efficient and
effective at identifying and reducing motor fuel tax evasion.

WHY TIGTA DID THE AUDIT

This audit
was initiated to determine whether the IRS and its contractors are making
improvements to the ExFIRS using
sound systems development practices and to follow up on prior ExFIRS findings.† The IRS is developing and maintaining the
ExFIRS, which was mandated by Congress as a result of motor fuel excise tax
evasion schemes perpetrated by organized crime syndicates in the late 1980s and
early 1990s.† Motor fuel excise taxes are
the major source of funding for the Highway Trust Fund.

WHAT
TIGTA FOUND

The IRS has
taken actions to improve system development effectiveness and address concerns
identified in a prior TIGTA audit report.†
These actions include elevating the ExFIRS to a major information
technology investment; ensuring the ExFIRS Project Office updates and completes
appropriate project management documents; and ensuring the ExFIRS Project
Office includes measurable performance standards in statements of work, clearly
defines deliverables, and implements an effective plan for monitoring
contractor performance.

While actions have been taken, additional improvements
are needed to ensure more efficient and effective system development.† For example, in October 2007, the
ExFIRS Project Team began a modernization upgrade of two of the six ExFIRS
subsystems using the Tax Exempt and Government Entities Divisionís Reporting
and Examination System (TREES) Compliance Case Management System as the
platform.† However, in February 2008,
Small Business/Self-Employed Division Excise Tax Program personnel saw a
demonstration of the new Large and Mid-Size Business Divisionís Issue
Management System and recommended that consideration be given to moving the two
ExFIRS subsystems to this new platform.†
The Unisys Corporation study provided a
detailed analysis comparing the TREES capabilities and functionality to the
requirements for the ExFIRS modernization, but did not provide a similar
analysis of the Issue Management System.† The Unisys Corporation stated in its report
that insufficient information and time were available to complete a detailed
study of the then current Issue Management System.† In addition, the Unisys Corporation study was
not extended to allow for an analysis of the new version of the Issue
Management System.

A study conducted by the MITRE Corporation concluded that
both platforms technically met the user requirements.† In August 2008, IRS executives approved the
migration of the two ExFIRS subsystems to the Issue Management System platform.† The decision to
move ExFIRS modernization development to the Issue
Management System increased the costs by almost $2.8
million and delayed implementation by 1 year.

Improvements
are also needed to ensure the completeness and accuracy of reported actual
system development costs.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the Chief Technology Officer ensure
that 1) all future system redesign alternatives are adequately considered
before final alternative selection, and 2) the
processes for collecting, computing, verifying and reporting financial data are
clearly understood and followed by Project Office personnel so that the
information reported is accurate and can be relied upon when making project
decisions.

In
their response to the report, IRS
officials agreed with the two recommendations and plan to take corrective
actions.†